Yesterday we posted a report titled "Hon Hai Posts Highest Ever Profits due to Apple's iPhone 6." The iPhone accounts for one in four smartphones in China and according to Tim Cook, iPhone unit sales in BRIC countries (Brazil, Russia, India and China) were up 97%. Apple had wanted to duplicate the success that they're enjoying in China with Foxconn in Brazil. According to a new study by Strategy Analytics, mobile handset revenues will grow +6% worldwide during 2015. At the same time, the four BRIC countries combined – Brazil Russia, India, and China – will all grow at rates well above the global average and will generate 36% of global handset revenues in 2015. So Apple has incentive to tap into this growth. A rumor last month stated that Apple was working with Intel on a new iPhone geared for emerging markets. Yet Apple's iPhone plant in Brazil is so far off target that everyone involved is starting to wonder if it will ever reach its potential as a major iPhone plant.
Today, Reuters has published a major story about the state of the Brazilian iPhone Plant and beyond. Reuters states that "When Taiwan's Foxconn Technology Group agreed in April 2011 to make Apple products here [in Brazil], President Dilma Rousseff and her advisers promised that up to $12 billion in investments over six years would transform the Brazilian technology sector, putting it on the cutting edge of touch screen development. A new supply chain would be created, generating high-quality jobs and bringing down prices of the coveted gadgets. Four years later, none of that has come true."
In reality, Reuters is reporting that "Foxconn has created only a small fraction of the 100,000 jobs that the government projected, and most of the work is in low-skill assembly. There is little sign that it has catalyzed Brazil's technology sector or created much of a local supply chain.
The iPhones now rolling off an assembly line near São Paulo, the only ones in the world made outside China, carry a retail price tag of nearly $1,000 for a 32-gigabyte iPhone 5S without a contract - among the highest prices in the world and about twice what they sell for in the U.S."
Reuters further notes that the iPhone plant site "remains an empty expanse of dirt, where bulldozers have been leveling the land since late last year.
Foxconn said in a statement that the facility should be operational by the end of this year, bringing its Brazilian workforce to more than 10,000, though it did not provide a specific number of jobs or disclose how many are working on Apple products.'
Yet while an official statement says one thing, Foxconn's new iPhone Plant expansion isn't going well and Terry Gou is on record as not being happy with the Brazilian work ethic. Although Foxconn is committed to finishing construction this year, it's a never ending story that began in 2011 with the locals being very unhappy at the pace of the project. When Terry Gou discussed Brazilian labor in the past, his take was withering.
In 2010 Gou commented to the Wall Street Journal that "Brazilian workers' wages are very high. But Brazilians, as soon as they hear 'soccer,' they stop working. And there's all the dancing. It's crazy."
In the end, Maria Luisa Cravo, the head of investments at APEX, Brazil's federal agency promoting foreign trade and investment stated that "There was a misunderstanding. Brazil expected one thing and Foxconn expected something else. But talks have restarted on this." Officials at three Brazilian ministries involved in the project declined requests for interviews about Foxconn's investments.
While the new iPhone plant in Brazil was to help Apple's growth climb dramatically in this important BRIC country, it's still stuck in a quagmire of politics. Did Hon Hai's Terry Gou really want the plant in Brazil to succeed? Only time will tell. But for now, Apple has made no comment while the negotiations are still ongoing. Apple's second major Apple Store in Brazil is scheduled to open this coming Saturday. For more on this story, read the full Reuters report.